Nordea Chief Economist: Uncertainty has eased

The global economy has gradually become more stable as uncertainty caused by the Trump administration's chaotic trade policies has diminished. The tariff strategy is becoming clearer as the US has signed trade agreements with major partners like the EU, the UK and Japan. Additionally, the truce in the trade conflict with China has been extended to 10 November.

The most gloomy predictions of the consequences of the trade war have so far been unfounded. Neither US nor global growth seems hard hit, even though US tariffs have reached their highest levels since the 1930s. The explanation lies mainly in the pragmatic approach most countries have taken to US demands. Moreover, since the US represents less than 15% of global goods imports, the majority of international trade remains unaffected by Trump’s new protectionist measures.

Against this backdrop, we maintain our May baseline scenario, indicating modest global annual growth around 3% over the forecast period, which now for the first time includes 2027.

However, there are regional differences. The estimate for the US is basically unchanged at around 2%, while we see a slightly weaker development in the Euro area next year than previously expected. This is mainly due to growing difficulties in implementing Germany’s EUR 500bn infrastructure package.

Another major uncertainty for Europe is the prospect of a peace deal between Ukraine and Russia. A peace deal could greatly boost both consumer and business confidence. It would also allow European companies to help rebuild Ukraine – a project estimated to cost hundreds of billions of euros.

The growth estimate for China has been raised slightly following a more expansionary economic policy than expected. However, we still believe that the official Chinese growth figures most likely overestimate the actual economic activity. 

While the key figures for China rarely shock the financial markets, the situation is quite different in the US. Donald Trump’s decision to dismiss Erika McEntarfer, the head of labour market statistics, created significant controversy. The dismissal came after the release of weak July employment numbers and substantial downward revisions to the previous two months’ data. Such politicisation of statistics is very problematic as reliable key data is the fundamental compass for economic policymakers, businesses and investors alike. If the compass is off course, you risk sailing blind.
 

Monetary policy independence has also been under pressure. President Trump has several times publicly criticised Fed Chair Jerome Powell for not cutting rates quickly enough. So far, the Fed has taken a wait-and-see approach as Trump’s trade policy may give rise to new inflation and also dampen growth – two scenarios that would require very different monetary policy responses. However, we expect that the Fed will lower its policy rate at the September meeting, as Powell indicated at his Jackson Hole speech at the end of August. The policy rate should then remain unchanged for the remainder of the forecast period.

By contrast, the ECB is not expected to cut rates further. The next step will likely be a rate hike – but not until 2027 at the earliest.

Public finances are under pressure on both sides of the Atlantic. In the US, the budget deficit has grown substantially since the pandemic, and debts are rising rapidly. And this trend will continue, unless economic policy is drastically changed. In Europe, defence spending and investments in the green transition are pulling in the same direction. This means that long interest rates likely will remain at a high level or even increase further, although inflation is fairly under control. Additionally, doubts about the sustainability of US debt are expected to contribute to further USD weakening.

The Nordic economies are naturally also affected by the uncertain growth picture, but remain on solid ground. Except for Finland, the Nordic countries belong to the exclusive group of AAA-rated nations with strong public finances and robust external balance sheet surpluses. Except for Norway, we have revised down our growth expectations for 2025 compared to the May forecast. The economic forecasts for Sweden and Finland have been lowered due to ongoing consumer uncertainty and persistent challenges in job markets as well as housing sectors despite more lenient monetary policies.

In Denmark, the downward revision is primarily a result of large downward revisions to the national accounts. That in itself is problematic, as – in Denmark as in all other developed countries – reliable statistics are crucial to maintaining a steady economic course. And that is especially true at a time when we are still navigating uncertain waters.  

This article first appeared in the Nordea Economic Outlook, "Steady path," published on 3 September 2025. Find out more about the latest Nordea Economic Outlook.